LIQUIDITY PREMIUMS AND THE EXPECTATIONS HYPOTHESIS

Robert Jarrow ()

Chapter 10 in Financial Derivatives Pricing:Selected Works of Robert Jarrow, 2008, pp 229-236 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractWithin the term structure of interest rate literature, three different quantifications of the expectations hypothesis are commonly employed. This paper demonstrates under very general conditions that the three quantifications are inconsistent. Each quantification implies a different price for the same bond. The paper concludes with a brief discussion of both the theoretical and empirical implications of these results.

Keywords: Derivatives; Options; Hedging; HJM; Black–Scholes; Forwards; Futures; Martingale Measure; Calls; Puts; Market Manipulation; Margin Requirements (search for similar items in EconPapers)
Date: 2008
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